Huong Pham

Today, transportation is the fastest growth area in terms of energy use. In the World Economic Outlook 2010, the International Energy Agency (IEA) estimates that transportation, in 2035, will account for 60 percent of global oil consumption, rising from 53 percent in 2009. And among all forms of transportation, private automobiles are the most significant users of energy. The number of private vehicles in the world now exceeds 531 million, growing by about 11 million annually. About one-fourth of those cars travel on U.S. roads, accounting for 40 percent of the nation’s annual oil use.

In an age of generally rising and unpredictable oil prices, the electrification of transportation is becoming crucial. Countries that power their transportation systems with electricity will have a huge cost advantage and independence from imported oil. The Electrification Coalition, a U.S. electric vehicle advocacy group, estimates that, if by 2040 Americans replace gasoline with electricity as an energy source for 75 percent of all miles driven, oil consumption will be reduced from the current level of nearly nine million barrels a day to two million.

Electric cars are especially important for the United States because its economy was built on the auto industry. In recent decades, however, the industry has been weakened by growing competition from imported vehicles powered by foreign oil. CEO Kevin Czinger of Coda Automotive, a company that designs, manufactures and sells electric vehicles, estimates that the United States exports $15,000 of capital every time we buy a car. A U.S. electric car industry supported by locally produced batteries would help reverse that.

There is clearly a market for electric vehicles in the United States. Drivers have repeatedly voiced concerns about global warming, dependence on foreign oil and unpredictable gas prices, all of which stem from gasoline-powered engines. Electric cars provide solutions to these problems. Using electricity for energy is cheaper than gasoline, and it can come from renewable resources such as solar and wind power. Electric cars are more economical, require less maintenance and pollute less than fuel-powered cars.

Electric cars still face major hurdles in being widely adopted. These include steep upfront costs compared to equivalent gasoline-powered vehicles, a dearth of public charging stations, inordinately long charging times and battery range limitations. However, a combination of technology and policy is in place to make sure that the market for electric cars will expand beyond the luxury niche initially targeted. Investment in advanced battery production and faster charging technologies is rapidly expanding.

The race to put electric cars on the world’s roads is picking up speed. China is vying to be the world’s leader in electric car production, and it has undertaken multiple initiatives to turn the country into one of the leading producers of hybrid and electric vehicles in three years. Besides providing $15 billion in seed money for the country’s leading auto and battery companies, the government is using $5-a-gallon gasoline to move the country off oil and onto the next industrial growth engine. With all this under way, China has gained initial success in attracting global investors to its electric vehicle industry. Warren Buffet, one of the most successful investors in the world, has been investing in BYD Auto, a Chinese company specializing in green products such as electric vehicles, energy storage stations and solar power stations.

In the United States, the Obama administration set aside more than $2 billion in the 2009 economic stimulus package for advanced battery and electric car research. The president also asked for ideas to create incentives that would accelerate the sale and use of electric vehicles, including a transformation of the existing $7,500 tax credit for the purchase of an electric vehicle into a point-of-sale rebate. However, these initiatives seem to be insufficient to put the United States in the lead position in the race to commercialize electric vehicles. What remains to be accomplished is a breakthrough in battery technology, which requires more support for research and mass production. It also will be essential to develop a network of homegrown suppliers. Without them, the country could end up being as dependent on foreign-made batteries and materials as it is on oil from the Middle East.

Takanobu Ito, the chief executive of Honda has said, “There will be a market for electric vehicles.”

If we can create enough market incentives for consumers to buy electric cars and the necessary infrastructure to support them, the electric car industry will flourish.

Th s would not only address the issue of dependence on imported oil, but also provide a significant competitive advantage for manufacturing in the United States. How quickly this can be realized depends on how well policymakers build the case for electric cars. If the United States does not grab the opportunity and take leadership now, the industry will take off in other countries. Eventually, the United States will end up spending its resources not only to import oil, as it does now, but to import electric cars as well.